Activity 5j: CPI result for June quarter 2024
- The three major contributors to inflation over the year were Alcohol and tobacco (6.8%), Insurance and financial services (6.4%) and Health services (5.7%).
- This is because the Furnishings, Household Equipment and Services category is only one of 11 categories within the CPI and it has a relatively low weighting of 8.4%. This ultimately means that inflation was caused by price increases in other categories, most of which have a higher weighting (e.g. housing and transport).
- This is because the housing category has a much higher weighting (21.7%) compared to the insurance and financial services category (5.4%). accordingly, any given price increase within the housing category will have approximately twice the impact on the CPI compared to the same price increase occurring in the insurance and financial services category.
- The temporary energy relief (via producer subsidies) will have helped to contain the growth in energy prices which are included in the Housing category of the CPI (i.e. the 1.1% growth in prices within the housing category for the June quarter and the 5.2% annual growth over the year would have been higher without the energy subsidies). Importantly, the energy subsidies resulted in the annual headline rate of 3.8% falling below the underlying rate of 3.9% (as the underlying rate excludes the price change caused by the one-off energy subsidies).
- A rate of growth in prices of 3.8% is not consistent with the achievement of price stability given that the RBA determines price stability to be achieved when the rate of inflation rests between 2 to 3% on average over time.
- Strong growth in rental prices is one of the reasons behind the excessive rate of inflation (i.e. headline inflation above 3%) and it was the major factor behind the relatively strong growth of prices within the Housing category.
- This is because the annual price increases of 5.6% in the education category took place during the first nine months of the 2023-24 financial year (i.e.1 July 2023 to 31 March 2024).
- The annualised rate of inflation for the June quarter 2024 was 4.0% (1.0% X 4) which is lower than the annual rate of inflation of 3.8%. This highlights that price pressures during the June quarter of 2024 were higher than the (average) price pressures experienced during the previous three quarters. As such, it suggests that the annual rate of inflation of 3.8% underestimated the true extent of inflationary pressures existing in the economy at the time (i.e. at the end of June 2024).